Have you turbocharged your retirement fund yet?
Time is running out for pensioners to take up a rare government offer that doubles the income they can receive on some of their savings. Yet take-up of this golden opportunity to turbocharge retirement income is reported to be extremely low.
The UK Government has offered up to 12 million senior savers the chance to convert a lump sum into a guaranteed income for life on terms that are up to 133% better than those available on the open market – yet the public has largely ignored the deal.
Steve Webb, the former pensions minister who launched the scheme, said:
“From what I hear, take‑up has been low. I think part of the problem is that people don’t really understand it.”
Certainly, the offer is not straightforward. Individuals must calculate whether it pays them to invest, depending on their age, health, marital status, tax bracket and inheritance plans. When the scheme was launched in 2014, for many it was a finely balanced decision. However, following further falls in interest and annuity rates, the attractions have grown substantially.
According to figures compiled by pension consultants Hymans Robertson, almost everyone would gain by taking part, other than pensioners who pay higher-rate tax and have lower life expectancy.
Chris Noon, a partner at Hymans, said:
“This will be a sadly missed opportunity for many as take‑up has been extremely low.”
Low take-up for the scheme
The Department for Work & Pensions said no figures for take‑up were available. Ministers launched the scheme to appease millions of individuals who had retired on the old basic state pension of about £120 a week and were aggrieved that they would not get the higher, flat-rate pension of £155.65, introduced in 2016. Anyone who reached state pension age before April 2016 was given the opportunity to boost their pension by up to £25 a week via a lump-sum investment.
This additional weekly amount will rise in line with the consumer prices index, and half can be passed on to a spouse on death. It doesn’t fully bridge the gap between the old and new amounts but offers a halfway house of £144.30 in total weekly income. However, the lump sum has to be invested before April 2017, when the offer closes. Those who qualify can in effect buy a government-backed index-linked annuity that pays almost 6% at the age of 65, compared with the 2.5% return available on the open market.
But, as with any annuity, if you die early the cash is lost. The income is also taxable, so individuals need to weigh their individual circumstances carefully.
Mr Noon said:
“It offers a guaranteed income, inflation-proofing and a survivor’s pension. These are very expensive to buy on the commercial market.”